* Aussie on track with 0.3 pct gain in May vs USD, kiwi down 1.4 pct

* Euro dips 2 pct this month vs Aussie

* NZ 10-yr govt yields at 10-month lows

By Gyles Beckford and Cecile Lefort

SYDNEY/WELLINGTON, May 30 (Reuters) - The Australian dollar crept higher on Friday, underpinned by short-covering, while the New Zealand dollar bounced off recent lows but was still on track to show a sharp loss this month.

The Aussie AUD=D4 rose to $0.9319, from $0.9300 in early trade, adding to an 0.8 percent gain on Thursday after Australian companies revised up their spending plans for the fiscal year starting July.

Dealers said the outlook for the economy came in better than bears had bet on, causing a short squeeze.

The currency looked on track to end the month 0.3 percent higher in the fourth consecutive monthly gain. Support was seen around $0.9210, with resistance at $0.9360.

The euro drifted lower to A$1.4600 EURAUD=R for the seventh straight session. It has shed more than 2 percent so far this month and a break under A$1.4557, would take it to the lowest since November.

The common currency has come under pressure on speculation the European Central Bank will take some form of action at its policy meeting of June 5 to tackle low inflation and credit growth.

Next week's local focus is the Reserve Bank of Australia's (RBA) monthly policy meeting on June 3. The central bank is widely expected to keep rates steady at a record low of 2.5 percent and special attention will be given to its statement, particularly on the tough government budget announced earlier this month.

"We believe that the RBA's policy stance remains firmly neutral," said Nomura in a note. "However, the statement may have a slightly more dovish hue, as the RBA takes note of the fiscal drag caused by the budget announcement."

Across the Tasman sea, the New Zealand dollar was off lows but still under pressure at $0.8500 NZD=D4 . It has lost 1.4 percent this month.

A generally softer tone to local data, a cut to the forecast dairy payout for the coming season, and expectations the central bank will ease up on its planned rate tightening have all weighed on the currency.

"The kiwi remains the market underdog as some of the steam in recent domestic economic data is released," said ANZ analysts in a market note, cautioning that market participants may be going too far in expectations of a central bank rate slowdown.

The latest data release, new home building consents for April, rose 1.5 percent.

However, the kiwi, which has been a carry trade favourite because of its yield advantage, was still seen vulnerable as it remains in sight of a near three-month low of $0.8451 touched on Thursday.

Initial support was found at $0.8435, with resistance at $0.8535.

Next week sees first quarter terms of trade, which are expected to show a modest rise as dairy exports continue to shine, along with latest looks at commodity and house prices.

New Zealand government bonds 0#NZTSY= followed the global trend with local yields up to 3.5 basis points higher. The 10-year bond yield NZ10YT=RR touched a near-10 month low of 4.22 percent.

Australian government bond futures retreated from multi-month peaks, with the three-year bond contract YTTc1 down 2 ticks at 97.220. The 10-year contract YTCc1 eased 1.5 tick to 96.350, having touched a 10-month high of 96.405. A break above 96.420, would it take it to the strongest in a year.

(Editing by Kim Coghill)

((Cecile.Lefort@thomsonreuters.com)(+61 2 9373-1234)(Reuters Messaging: cecile.lefort.thomsonreuters@reuters.net))

Keywords: MARKETS AUSTRALIA/FOREX